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Wednesday, April 18, 2007

Cost-Benefit of Overseas Education

Many parents today save up a lot of money for their children to pursue an overseas education. More than a few would have asked, is it all worth it? Well, someone actually did a fairly detailed cost-benefit analysis on the issue using a simple financial model (with assumptions of course). Check out Ahmad Ismail's analysis on the issue here.

Basically, the conclusion appears to be that "there is nearly no economic benefit to sending children abroad as opposed to sending them to local universities". Unfortunately, I haven't the time this 2 days to do a rigourous study of overseas education and its cost and benefits, I'll give my 2-sen on my personal views with regards to the issue.

The most significant global phenomenon of tertiary education for the past decade or so, has been the "democratisation" of degree-level education. That is sort of a polite way of saying "everybody also can get a degree from somewhere or other". We have argued that the focus on the quantity of universities and university graduates has reduced the quality of degree level education in Malaysia. However, it is not a phenomenon unique to Malaysia.

To varying degrees (pardon the pun ;)), it is the same for Australia, United Kingdom and the United States. The global result is hence the overall decline in the average quality of degree graduates. For example, a student who would possibly have qualified only for a diploma in the past, would have no problems securing a degree certification today.

Viewed from the above context (which is different from the approach taken by Ahmad), the argument that an overseas education may not be economically more beneficial than a local university holds a certain level of merit. My experience in recruitment has certainly taught me that local graduates are not uniformly weaker than foreign ones, as often generalised (and I would say, generalised wrongly). There are graduates from foreign universities who I would not hire, even if I'm offered a 3-month free trial, just as I wouldn't some local graduates.

At the same time, there are many local graduates who I would happily hire, and rate equal or better than most "overseas" graduates. Hence, in this regard, my personal experience 'sort of' adds justification to Ahmad's hypothesis.

However, I believe that there are exceptions. The exceptions are when these overseas graduates originates from the top universities overseas. Whether justified or otherwise, the market rates graduates from say, Yale or Cambridge much higher than those from the average (for lack of a better descriptive term), universities. I must admit that I have personally benefited from such treatment having graduated from Oxford. Whether its fair, justifiable or otherwise, my chosen alma mater eased my entry into on of the top global consulting companies and indirectly helped my start up business due to better chances of seeking appointments with key client managers. Even today, in politics, I'm being viewed a little differently, whether I like it or not.

Hence, in all likelihood (it's still a long time yet) for my own daughter, I'll happily (by hook or by crook) send her overseas if she gains entry into some of the top schools in the world, knowing that she will benefit directly or indirectly from such an education. However, if she's say, an average student, local universities or possibly the insitutions down south, may be the preferred choices.

There is however, a caveat to the above argument. The choice between a local public university as opposed to an overseas university also presupposes that the former is an applicable option, particularly for non-bumiputeras. If access to local public universities isn't a reliable option due to uncertainty of entry requirements as well as course allocation, then the students have no choice but to secure their tertiary education either at local private unversities like Multimedia University or via twinned programmes with local private colleges or directly to overseas institutions.

30 comments:

Sometime back I read in the Reader's Digest an article by a parent who taught in Oxford on why he believe it is not worth for him to send his son to the University.

He was making an issue of the current Universities are no longer teaching students to think and acquire knowledge especially in the liberalization and democratization of education.

It has come to a point as they say in 'stock market' jargon that if the pork sellers and the hawkers have enter the market, its time to 'pull out'

In view of the present state of the quality of education, may be it is not worth it to sell your house to send your children to prestigious universities.

At times I think that sum of money would have been better invested in buying parking lots in KL and getting the return by parking charges by the hour. No hassle...easy money! No sweat! No brain cancer in studying!

I have read that article by Ahmad Ismail. Excellent effort. However, for myself and ALL the relatives and friends that I know who sent their kids for overseas education, the primary reason is never the economics of financial return.

The only aspect of the economics relevant in those minds is that our kids would hopefully be better prepared for a chance at a lifelong career, ie, being able to cari makan for life, rather than making a "profit" from studies compared to the cost of that "investment".

The main reason that I and they do that is so that our kids would have a better education to become better persons or, dare I say, real intellectuals. Yep, that's all.

If therefore our local system was adequate, none of us, and certainly myself, would care to send our kids overseas, unless somebody gives them a scholarship, and in which case we are not going to deny them that long holiday.

In fact, it is also my observation that those who think in economics terms would not send their kids overseas, certainly not for undergraduate studies.

I am not at all a rich man, but it is still my view that intellectual development is key for balance in life and cannot be evaluated in monetary terms.

I think it basically goes back to the issue of the quality of education. Working in the field, tertiary education in Malaysia, in general, is sadly below minimum expectations. So, the choice of studying at overseas institutions is obvious.

However, students who are committed, will fare well enough in any situation, vice-versa as will bad students.

If you have the money, there is no greater investment than in your children education...

Not this "top university" malarkey again! There's starting to be a revolution against them by the universities themselves because both the unis and the rankers were making up data, there isn't much consistency, information is being hidden, and some unis are even BOYCOTTING the rankings:

But anyway. Surely there is more to a university experience than its economic value. What about the experiences? What about the lessons learnt? What about initiatives and opportunity? Does everything have to be reduced to how much you earn per month?

Sure, international education isn't necessarily the best option. But just looking it from a cost/economic angle is short-sighted.

"However, students who are committed, will fare well enough in any situation, vice-versa as will bad students."

Although it makes sense, but what if majority of students in that particular university is all smart asses? Especially if the grading system is based on bell curve, it will then use to differentiate the best out of the best! You may be smart and committed on one side, but you can still lose to other smart students and ended up in the lower rank from that batch. So does that make you incompetent?

To the contrary, if a university is mostly less-than-average students, some of them can still still end up as top achievers in their cohort. Then are they competent?

Make it simpler, a first class student from ABC, which is of lower quality and a second class student from XYZ, which is of higher quality. Who is better?

In a nutshell, there is always a difference between the quality of students and educations, and not just based solely on that individual. Hope i get my point across.

Going abroad for many is a dream and could stay as that if you don't make full use of your degree. Secondly, many studied abroad in subjects that are suitable for overseas jobs but not for Malaysian ones. Either there aren't any suitable employers who are willing to pay them what it is worth or that they simply don't exist. Having been to antipodean and northern hemispheres for my education I can only come to one conclusion. If you have the money no one can stop you from going to a foreign uni. But if you don't it is not the end of the world as many can simply work and study part time in a professional vocation which stands more ground in the commercial world than with the current apalling situation with diluted half baked degrees even from such places like Oxford or Harvard. One becomes an egg head with huge egos that cannot be grounded in any sense of well being for countrymen and women all round them. But of course this is subjective and culpable to debate and argument.

Really, I believe that a child these days should save up for their house, work full time study evenings or weekends and work towards being self sufficient and independently sound financially and know that he or she can retire without having to work the rest of their later years.

Financial freedom, good health and sound judgement is key - not the number of degrees or the institutions that you are from.

1. If the student opted to work for 40 years oversea, then RM3,320,000 well over RM 1,524,724 earn for those studying locally. and there are possiblity of student working oversea for several years and work locally for several years. the writer did not take into account of this.

2. Secondly, the return of 939,604 from investment is not justified. If without taking into account 4% inflation rate, it will be 250,000 x 7.5% x 40 =750,000. if 4% taken into account, then it would be 250k x 3.5% x 40= 350, 000. No way of calculation ends up with 939,604.

3. thirdly, assuming the postdoc/master earning the same as graduate wif first degree (as assumed by writer), the post doc/master will work for fewer years as 2-4 years have been spent on postgraduate studies...and obviously will earn less for the lifetime.

4. the oversea student working overseas will earn more yearly than the local student working locally + condo investment. with the extra money earnt every year, some amount can be spared for investment at the same time. if so, the expected income for oversea student working oversea will be much more than the 1.4 million as projected, purely from salary pay.

Just think that the calculaton is too simplistic. obviously there are more factors to consider.

I agree with the above anons. Studying overseas is certainly a life changing event. Even if it is not to an Ivy League university, the international exposure is priceless. Life is more than just collecting monthly rent to survive.

A point I like to bring to the table: studying overseas is a means of migration. For above average individuals who remain overseas, the ROI is quite high. Securing overseas work visas directly after graduation is a tad more difficult.

(Double-posted from my posting on the link above, for discussion purpose here)

The perspective presented is solely from “the parents' point of views” on the returns of their 'investments'. Surely to the parents the analysis above may indicate no difference (however some assumptions used in the analysis are too simple - I will explain later), as their initial investments would return roughly the same NPV. However, it is the form of investment returns that makes the difference.

In the case of a local grad, the child will have much less earning incomes ($585120 lifetime while the parents still enjoys $939,604), while an overseas grad could earn much more ($1,444,860 lifetime). Is this not a clear advantage of an overseas education in its earning power? Of course to the parents, the percentage of the incomes earned on the fees paid is a big difference (>29x returns on $20,000 local fees compared to just >5x returns on overseas $270,000 fees). However, if we shift the perspective down one level to the children's level, i.e., we ignore the need for good returns on investments and focus solely on the real money that can be earned from salary, then things starts to get interesting – where would you rather wish you parents send you to (assuming your have a choice) - a local uni or an overseas uni? As parents, especially Asian parents, we (I am a parents of two) would rather sacrifice for the goods of our children, and sending our children overseas in the hope that their have a better education and future is exactly the motive in the first place (at least that’s true for my parents) and the better earning power (from the analysis) of an overseas education proves this!

As a current overseas PhD student, I do not agree that parents still have to be responsible for paying RM100,000 a year for their children’s Masters/PhD. Once you have a Bachelor, chances are you are likely to work overseas, and apply for permanent residency (PR), and if you are lucky to be granted one, you pay only domestic fees (and there are many tangible and intangible benefits associated with being a PR as well). This is your own responsibility and not your parents’ anymore! Furthermore, Masters and especially PhD are usually funded by Scholarships, which include fees and living stipends, so you and your parents need not pay anymore money, barring of course the opportunity cost lost had you entered the workforce and start earning right away. So the RM703,533 used above for paying for an overseas Masters/PhD is way beyond acceptable. Furthermore, won’t any local grad considers doing Masters/PhDs study as well, albeit at local Unis?

Also, assuming a Masters/PhD holder to earn the same as a Bachelor holder is not very realistic. Recent news reported that Masters earn substantially more than Bachelor, although a PhD, due to the specific nature of its expertise, may not earn as much as a Masters (I know – it’s shocking for me!).

To sum it up: an overseas education - $270,000, lifetime incomes after that - $1,444,860, the EXPERIENCE – priceless!

That's kinda true. But the majority of the mediocre Malaysian students I've seen from my university are getting really well paying jobs. The lowest was around RM154K/year, highest was around RM260K/year. In fact, the guy who's an all rounder, a top student returned to Malaysia because he chose to stay together with his gf.

Different people will get something different out of the overseas "experience". I found people both inside and outside Malaysia to be easy to figure out and so I didn't really gain a lot of cultural enlightenment from living in the US for four years. (I was quite disappointed.)

I found that working in organisations there and here is very similiar, but that's probably because I tend to think at a sub-cultural level - focusing on people's raw biological cognitive functions, which supercede any cultural training.

Tony.. as others have noted, the blogger's analysis which you commented on is so conceptually thin and abstract, I can't understand why you even bothered to take note of it!

I knew that the article would provoke some strong responses from your readers.

I wish to ask the following philosophical question: In the end, what is an education for?

Since Asians are very pragmatic people, I was hoping that the majority would answer: To secure a good job later in life. A means to an end. The education is the means to an end (the job). If this is true, then my analysis of looking at the matter from a purely financial perspective is the right one.

If you believe in something else, e.g. if you believe in education for education's sake, then answer me this: Would you send your child for an overseas degree in Pornographic Studies, Film Studies, or History of Art or some other crap degree?

If you believe in something else, e.g. if you believe in education for education's sake, then answer me this: Would you send your child for an overseas degree in Pornographic Studies, Film Studies, or History of Art or some other crap degree?

last thing we need are bigots from the elite suffering from god complexities. i'm sorry but thats the impression i get from that.

economics would not make any sense if it could not be applied to other fields. so dont demean other fields of study. dont get me wrong im not enrolled in pornographic studies and being defensive, i am pursuing a course in economics

Another point I forgot to mention - we all seem to assume that by doing what is best for our kids, they will in turn do the best for us.

I think, we as Asian parents place too much faith in our kids. Paying on their behalf also creates the problem of moral hazard - like the proverbial example where a person with car insurance tends to drive more recklessly than one without.

IMHO, it is better parenting to force your child to pay some or most of his or her university fees himself. It builds character, something that we desperate need to instill in today's materialistic and self-interested generation.

economics would not make any sense if it could not be applied to other fields. so dont demean other fields of study. dont get me wrong im not enrolled in pornographic studies and being defensive, i am pursuing a course in economics

If my child wanted to do those degrees overseas, and was able to finance him/herself, as a staunch liberal it would be against my principles to stop her. In that sense, I have nothing against those fields of study.

Since Asians are very pragmatic people, I was hoping that the majority would answer: To secure a good job later in life. A means to an end. The education is the means to an end (the job).

That has to be the most destructive attitude towards education I've seen amongst Malaysians.

Education is NOT A MEANS TO AN END. The point of education is NOT just for a job.

Education is for learning, it's for self-enrichment, it gives you the tools to improve your life and other's. To reduce it to "to get a job" is INSULTING.

It's this attitude that has led to students being unnecessarily stressed out trying to do courses that they are not interested in just for the money. It's materialistic, it's unfair, and it's just plain stupid.

If you believe in something else, e.g. if you believe in education for education's sake, then answer me this: Would you send your child for an overseas degree in Pornographic Studies, Film Studies, or History of Art or some other crap degree?

Why not?

I'm doing a Creative Industries degree in Australia. Firstly, HOW DARE YOU say it's a crap degree? Do you actually know what those degrees entail? The value they contain?

In my degree I'm learning critical thought, project management, working with people, considering other points of view. How is that "crap"?

If that was their interest, great! I'd say go for it! There aren't that many avenues for alternative degrees in Malaysia so if you have to go overseas for it, so be it!

I don't have enough income on my own to pay for my own university degree. My part-time job only pays so much. I'm here on a partial scholarship.

Your entire premise is flawed. It's based on an elitist (like someone earlier pointed out) prejudiced view that only certain disiplines and degrees are "useful" and everyone else is not worthy.

You're not really such a liberal if you can hold such a view like that.

I read the article, and I believe, as a student studying overseas that an overseas education- it encompasses more than merely an attempt at getting a jobworthy degree. Going overseas to study is about the experience that happens in and out of the classes of university and the paper at the end.

It is about the experience of interacting and living in another culture, understanding their values and morals, among others.

It is about learning to broaden one's mind to the perspectives of others.

It is about adventure and life lessons, life challenges.That, as much as the academics, is the benefit of learning overseas.

It challenges the student to break out, and make the most of their immersion in a culture distant from home.

Next week (22nd &23rd May) we are organizing a groupdiscussion about overseas study for children.

We are looking for parents of children who are considering overseas education from 3 years old to pre-university level.

Are you interested? Do you want to share your opinion with other parents? The discussion will take around 75 minutes and we will reward you for your opinion and time with 65 RM. The groupdiscussion will take place in Kuala Lumpur at Damansara Heyhts.

Interested? You can send an email to: maartje@mypanel.com.my or give a call to 03-21611454.

But how many students decide to stay or move to other countries, enjoying better lifestyle after their graduation from overseas institution? The reasons are not just economics, there are also consideration in their future prospect, family and others.

It really depends on respective individual needs and their definition of success. In my case, i am glad to have done my undergraduate and master studies in UK. After my graduation, i secure a job with a reputable engineering consultant firm. The pay and prospect in the future is great. I believe i can breakeven my cost of studies by working in UK . Nonetheless there are gain and loss. Being away from home and family is one thing.